Unit Four

Question 1

1. The consumer is rational

Answer 1

The consumer wants the most utility for their money

Question 2

2. The consumer can rank goods

Answer 2

They rank goods in order of preference based on marginal utility per dollar

Question 3

MU/$

Answer 3

MU = marginal utility (the utility gained from the next item consumed)
$ = price (the amount that it costs to acquire that utility)

Question 4

3. The consumer understands Diminishing Marginal Utility

Answer 4

At some point in the consumption pattern of a good, each additional unit consumed yields less additional utility
Almost always occurs after the first item is consumed

Question 5

4. The consumer is constrained by prices and their income

Answer 5

Budget constraint

Question 6

Budget constraint

Answer 6

The limit on consumption placed on consumers by their income

Our own personal PPF

Question 7

5. The consumer will always attempt to maximize their total utility

Answer 7

Just know this as a fact

Question 8

Purchasing power

Answer 8

The amount of goods/services a consumer can buy with a unit of currency
Inverse relationship with price

Question 9

MUa/Pa

Answer 9

When comparing items you MUST compare them based on MARGINAL UTILITY per dollar or MUa/Pa